Psychiatric emergency services (PES) emerged as a key mental health reform strategy designed to decrease costs and improve quality of care. These services are critical to reduce the utilization of high-cost services such as inpatient hospitalization by achieving stability at the outpatient level. Yet, little is known about the variations existing in the arrangement and effectiveness within the different types of PES. This study explores one type of PES, emergency department psychiatric consultation. The purpose is to examine the degree to which environmental, economic, and quality-related factors determine an emergency department's psychiatric consultation arrangement and how this decision influences service effectiveness. It seeks to answer two questions: 1) What factors lead hospitals to create an in-house psychiatric consultation service, to purchase the services from an outsider, or to not provide the service at all? and 2) Does variation in the consultation arrangement have a significant impact on service outcomes? Transaction cost economics is employed to identify and explain the factors that may influence a hospital's choice of psychiatric consultation arrangement. The general hypotheses are: 1) that arrangement decisions are based on the internal and external environmental characteristics of the transactions; and 2) that the type of consultation arrangement has an impact on service effectiveness. These hypotheses will be tested in an analysis using survey information from hospital administrators, patient level secondary data to examine service outcomes, and AHA survey data on hospital characteristics. The analytical technique of structural equation modeling (SEM) will be used to test the conceptual model that illustrates a directional relationship among transaction cost factors, consultation arrangement, and service outcomes. Multi-level analysis will be utilized to distinguish outcome variances related to patient (individual) versus organizational (ecological) factors. Psychiatric emergency services have become an integral component of the mental health system. As policy makers increasingly scrutinize the costs and quality of care within the mental health system, a clearer understanding of the advantages and weaknesses of this branch of emergency services becomes critical. It is obvious to both service users and providers that PES are of significant value. However, this presumption must be substantiated by empirical evidence to gain the necessary funding and public support. This research will provide critical information about the extent of variation within PES that would assist in identifying the most cost-effective arrangement and streamlining of the system. Hospital emergency department psychiatric consultation is the most common and widely used type of PES. This study will be the first to examine variations in the arrangements and outcomes of this particular type of service. The results can inform legislators, hospitals, and other personnel involved in health care decision-making and planning for future PES development. The Agency for Healthcare Research and Quality is currently developing an Ambulatory Care database that includes patient encounter data from various ambulatory service settings. Because this database is not yet available for public distribution, this study will utilize the Ambulatory Care Service databases of two states to obtain specific emergency department encounter data. The demonstration of the utility of these state databases will attest to the potential use of the HCUP database and encourage its application in future research.